Lincoln Savings Bank, Plaintiff–Appellee, v. DMU LLC DMU LLC DMU LLC (2026)

DMU, Iowa Land, LLC; DMU, Iowa Land, LLC—Series A; and DMU, Iowa Land, LLC—Series C (collectively DMU) appeal district court rulings establishing priority order and distribution following the foreclosure of mortgages on real property.

BACKGROUND FACTS AND PROCEEDINGS

In early 2021, DB Booneville, LLC (DB Booneville) sought funds to purchase and develop two neighboring parcels of land to the north of where Des Moines University was building a new campus in West Des Moines. A thirty-seven-acre parcel—which we will call “Parcel 1”¹ —has a street address of 8295 Booneville Road, county parcel ID numbers 1623300006 and 1623300007, and a legal description of:

The NE 1/4 of the SW 1/4 in Section 23, Township 78 North, Range 26 West of the 5th P.M., Dallas County, Iowa, except that part deeded to the City of West Des Moines recorded in Book 2011 Page 6691.

The other parcel, nineteen acres directly to the east of the first parcel, will be referred to as “Parcel 2,” with an address of 8015 Booneville Road, county parcel ID number 1623400001, and a legal description of:

West 1/2 of the NW 1/4 of the SE 1/4 of Section 23, Township 78 North, Range 26 West of the 5th P.M., Dallas County, Iowa.

DB Booneville arranged to borrow from DMU to purchase the land. In January 2021, DB Booneville executed a Promissory Note and a Mortgage and Security Agreement with DMU Series A for Parcel 2. The mortgage had a principal of $5.55 million with a 1% interest rate, and the Promissory Note included a $2 million “commitment fee” from the loan amount. Default would result in a 5% per month interest accrual on the outstanding principal, plus a 4% late payment fee. The loan had a payoff date of September 30, 2021. The mortgage was recorded on January 15.

On March 1, DMU Series C and DB Booneville entered similar agreements as to Parcel 1, this time with a principal of $9.467 million and a commitment fee of $3.667 million, but otherwise identical terms and payoff date. This mortgage was recorded on March 3.

For each loan, Daniel Pettit—the manager of DB Booneville—and his wife Rachael Pettit signed individually and as trustees of their respective revocable trusts as guarantors on the DMU loans.

In April, DB Booneville entered into a separate borrowing agreement with Lincoln Savings Bank (LSB) “for the purposes of constructing the improvements” on the real property. On April 19, DB Booneville and LSB executed a promissory note, a business loan agreement, and a construction loan agreement. The loan had a principal of $10.256 million, with a payoff date of October 19, 2022. A portion of the loan—$4.256 million—was to be used to pay down the DMU loans. Under the business loan agreement, DB Booneville was required to “maintain a checking account with [LSB], with a minimum balance equal to 12 months of interest payments․ [N]o disbursements will be made without [LSB]’s consent.” It also provided LSB's mortgage would “be partially released on the ground purchase only after receipt of 70% of the gross purchase price applied to [LSB]’s loan.” The initial interest rate for the mortgage was 3.75%, but it would increase to 18% upon default, and DB Booneville would owe a late charge of 5% on delinquent payments. As with the DMU loans, the Pettits and their trusts stood as guarantors for the LSB loan. The construction loan agreement included the following provision:

The real estate described below constitutes the Real Property as used in this Agreement.

The real estate legally described as:

The NE 1/4 of the SW 1/4 in Section 23, Township 78 North, Range 26 West of the 5th P.M., Dallas County, Iowa, except that part deeded to the City of West Des Moines recorded in Book 2011 Page 6691.

Its address is commonly known as:

Real Property located at 8015 & 8295 Booneville Road, West Des Moines, IA 50266.

The agreement listed both parcels’ street addresses, but only the legal description of Parcel 1.

The construction mortgage contract filed with the Dallas County Recorder's office included the same legal description and addresses as the construction loan agreement, with the addition “The Real Property parcel identification number is 1623400001, 1623300006, 1623300007”—including Parcel 1's legal description, address, and parcel numbers as well as Parcel 2's address and parcel number. The filed version of the contract secured credit up to $19.87 million.

As a precondition to the loans, LSB required DMU's indebtedness subordinate to the LSB debt on the property. So DB Booneville, DMU, and LSB entered a “Subordination and Standstill Agreement.” The agreement identified the subordinated debt as the DMU mortgages on both parcels, and DMU “agree[d] that the Subordinated Indebtedness shall be made fully subordinate to the [LSB] indebtedness for all purposes.” The agreement included a clause for the insolvency or bankruptcy of the borrower, in which event DMU agreed to order and direct any dividends or payments to be paid to LSB to the extent any amount of LSB indebtedness remained unpaid.

When the title opinion for the properties was being created, it was brought to LSB's attention that the filed mortgage did not include Parcel 2's legal description. LSB's central loan processing department told the executive working with DB Booneville that since the address was already on there, they just needed to add the missing legal description, and a mortgage modification was not required. So in September, LSB refiled the mortgage contract, with an explanation at the top: “This Mortgage is being rerecorded to correct/add the legal description below” and Parcel 2's legal description typed at the bottom of the first page. LSB did not seek a renewed signature from DB Booneville. And in October, an amended subordination agreement was filed. The amended and restated subordination agreement included the legal descriptions of both parcels, acknowledged the re-recorded mortgage filed in September, and included the financing statement to the subordination. This amended subordination agreement was executed in October 2021, after DB Booneville was already past due on its DMU mortgages.

In 2022, the two parcels were platted as “The Village at Sugar Creek.” At the same time the plats were filed, LSB filed a partial release of its mortgage lien as to two platted lots and three outlots, at least one of which stretched across both parcels.

DB Booneville and its guarantors failed to pay off the loans with both DMU and LSB. In November 2022, LSB provided written notice to DB Booneville of its default on the April 2021 promissory note. In March 2023, LSB petitioned to foreclose on the properties. Among its other claims, LSB asserted its mortgage had priority over the DMU mortgages courtesy of the subordination agreement.

DMU answered, arguing LSB held no interest in Parcel 2 in the executed mortgage, and therefore DMU would have first-priority interest in that parcel. DMU also entered a “counterclaim/cross-claim/third-party claim” against DB Booneville and the guarantors seeking payment of its mortgages and foreclosure. DMU's claim asserted it was owed nearly $11 million in principal for the mortgages it held and nearly the same amount in accrued interest and fees.

In the summer of 2023, LSB filed a motion for summary judgment. The district court granted summary judgment in favor of LSB to collect the guaranties of DB Booneville's obligations as given by Daniel Pettit and his revocable trust.² Rachael Pettit was later dismissed from the lawsuit without prejudice.

In May 2024, LSB moved again for summary judgment, this time against DB Booneville to enforce its note and foreclose the mortgage. DMU resisted, arguing LSB “does not have a mortgage in the real estate it seeks to foreclose.” Following a mediation, LSB withdrew the motion as to DMU. Only an intervenor (one of the project contractors) opposed the motion at a July hearing. The court held, “The undisputed facts establish [DB] Booneville is in default on its obligation to pay LSB on the mortgage and note executed on April 19, 2021․ Subject to its settlement with DMU, LSB is entitled to foreclose on its superior mortgage and security interests.” The court dismissed all intervenor claims, leaving only DMU and LSB as parties able to recover from the foreclosure.

In September, the case's remaining issue as to priority between the DMU and LSB mortgages reached trial. The parties submitted trial briefs and their exhibits to the court before trial, then offered their arguments in person. The district court issued a thoughtful, thorough ruling considering each of the parties’ arguments in turn. The district court found LSB had a mortgage as to both parcels in question. The court further found that the subordination agreement was supported by consideration, LSB had no affirmative duty to safeguard the use of distributed funds, and the business loan agreement provision for split of proceeds did not apply after default. But the court found $1.287 million of the funds LSB advanced did not fall within the construction loan agreement's purpose, and that it would be inequitable for repayment of those funds to be within the first-priority lien. The court's ruling established the order of priority for the payment of proceeds from the disposition of the property. A few months later, the court amended the order relating to the priority of the non-construction funds in relation to DMU.

The court's final ruling determined that LSB had first-position lien for its full debt except for the non-construction funds distributed. DMU had second-position lien for its full debt. And last, LSB had a third-position lien for the funds distributed outside the stated purpose of the loan.

DMU appeals.

STANDARD OF REVIEW

This case was tried in equity, so our review is de novo, though we give weight to the district court's fact findings. Iowa R. App. P. 6.907; Soults Farms, Inc. v. Schafer, 797 N.W.2d 92, 97 (Iowa 2011). But “[a] mortgage is subject to the principles of interpretation and construction that govern contracts generally.” Soults Farms, 797 N.W.2d at 107. And “[d]etermining the legal effects of a contract is a matter of law to be resolved by the court.” Galloway v. State, 790 N.W.2d 252, 254 (Iowa 2010). “These principles are designed to identify the intentions of the parties.” Soults Farms, 797 N.W.2d at 107.

“The most important evidence of the parties’ intentions at the time of contracting is the words of the contract.” Peak v. Adams, 799 N.W.2d 535, 544 (Iowa 2011). “When the interpretation of a contract depends on the credibility of extrinsic evidence or on a choice among reasonable inferences that can be drawn from the extrinsic evidence, the question of interpretation is determined by the finder of fact.” Id. (citation omitted). “The key is to ascertain the mutual intent of the two parties․ A contract requires a meeting of the minds.” Id.

DISCUSSION

DMU makes a number of challenges. They argue LSB's alteration of the filed construction mortgage rendered it void, and the reliance on parcel numbers and addresses in the mortgage was insufficient to identify the real estate. Then, DMU claims LSB did not provide consideration for the subordination agreements. Next is an assertion LSB is only entitled to 70% of the proceeds based on a loan agreement provision. Finally, DMU urges the court should not have amended the order of priority following LSB's post-trial motion. We begin with the real estate identification in the mortgage contract.

I. Address and Parcel Number as Identification

DMU contends LSB's inclusion of the address and parcel number of Parcel 2—8015 Booneville Road, West Des Moines, and parcel number 1623400001—on the filed April construction mortgage was not sufficient to identify the real estate mortgaged, and the mortgage should only be valid as to the real estate with the legal description included.

“In order to be effective, a mortgage must describe the property covered with sufficient certainty to identify it or furnish the means by which, with the aid of extraneous evidence, it may be identified.” 59 C.J.S. Mortgages § 145 (2026); see also Bayview Loan Servicing, LLC v. Reisetter, No. 07-0877, 2008 WL 2514628, at *1 (Iowa Ct. App. June 25, 2008). So if the description is “sufficiently definite to enable the land to be located,” the mortgage is effective. 59 C.J.S. Mortgages § 145. Explained another way,

The purpose of the description ․ is not so much to identify the property conveyed as to furnish the means of its identification. Although it is vague or indefinite, it will not render the mortgage inoperative if it contains data from which a certain description can be made out, or if with the aid of extraneous evidence the property can be described with reasonable certainty.

Id. (footnotes omitted). Further, our supreme court has observed even “an erroneous description will not render a mortgage unenforceable” so long as the intended property to be mortgaged could be identified. FirstCentral Bank v. White, 400 N.W.2d 534, 537 (Iowa 1987). The court went on to note the general rule:

[T]he validity of a mortgage may be attacked, in foreclosure proceedings, for illegality, fraud, duress, or other such matters which undermine its very foundation, but not because of a mere want of authority to execute the mortgage, or to receive it, as the case may be, not affecting the validity of the debt intended to be secured, or for indefiniteness or mistake in the description of the property intended to be pledged.

Id. at 537 (cleaned up); see 59 C.J.S. Mortgages § 708.

So the question becomes whether the county, city, street address, and county parcel identification number are sufficient to identify the property mortgaged. The street address provides the city's designated identification of the parcel, and the parcel number represents the county's identification of the parcel. LSB filed the amended mortgage including the legal description of Parcel 2 before the property was platted or subdivided in a way to render either identification manner unclear or ambiguous. The added description did not change or add any property to the mortgage that was not already identified as the real property described in the construction mortgage document. Nor was there any confusion from any party over what property was mortgaged.

DMU argues the supreme court rejected a street address as a requirement in a real estate description in In re Orwig's Estate, 167 N.W. 654 (Iowa 1918). In that case, the deed at issue included the legal description for conveyed property but did not include the street address. Orwig, 167 N.W. at 655. The court found the legal description sufficiently definite and certain even without the street address. Id. But nothing in that case implies a street address cannot be definite or certain. See id. at 655–56. Instead, the court specifically observed, “[I]f, upon the whole instrument, there is sufficient to manifest the intention of the parties with reasonable certainty, that will suffice.” Id.at 656.

We find the real property covered by the construction mortgage was sufficiently identified in the document.

II. Construction Mortgage

DMU's primary claim is that “[b]y unilaterally adding a legal description of a second real estate parcel, LSB committed a fraudulent and material alteration that fundamentally transformed the Construction Mortgage's scope and security interest, rendering the entire modified mortgage void under established Iowa law.” And because LSB did not follow the contract's mandatory amendment procedures, DMU claims the mortgage would only be enforceable as to its original terms.

The district court noted both parties urged the court to consider the instruments contemporaneously executed with the mortgage, which combined with principles of equity and facts, “inescapably [led] to the conclusion they did” intend for LSB to have a mortgage on both parcels. The court further observed “perhaps the strongest indication the parties intended for the mortgage to cover both parcels of property is the execution and filing of the Amended and Restated Subordination Agreement․ filed on the heels of the new mortgage ․ with the added legal description for Parcel 2.” In short, “[c]lear, satisfactory and convincing evidence establishes [DB] Booneville's grant of a mortgage to LSB was intended to apply to Parcel 2, despite the omission of the legal description for that parcel. All parties, including DMU, intended the mortgage to apply to both parcels of property.” The court reformed the filed construction mortgage “to include the legal description for Parcel 2.”

DMU points to a uniform commercial code definition of alteration for support that the mortgage was void: an alteration in negotiable instruments is “an unauthorized change in an instrument that purports to modify in any respect the obligation of a party, or an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party.” Iowa Code § 554.3407(1) (2021). But this argument is not persuasive. “The rule in this state is that any alteration which does not give the instrument a different legal effect is not a material alteration, and will not avoid it.” Iowa Valley State Bank v. Sigstad, 65 N.W. 407, 408 (Iowa 1895). “Where there has been a mistake, whether mutual or unilateral, in the expression of the contract, reformation is the proper remedy.” Soults Farms, 797 N.W.2d at 108–09. Equity will not reform an agreement without “a definite intention or agreement on which the minds of the parties had met” preexisting the instrument. Id. at 108 (citation omitted).

DMU does not dispute that when the LSB loan originated, the intent and understanding of DB Booneville and LSB was that LSB's mortgage lien applied to both parcels. And DB Booneville admitted the mortgage attached to both parcels. So, given our finding on the sufficiency of the address and parcel number as identification above, the rerecorded contract with the legal description added did not alter the contract's scope or security interest, so it was not a material alteration. We also agree with the district court's finding that DMU's execution of the amended and restated subordination agreement—which specifically references the rerecorded mortgage as the LSB mortgage—consented to the LSB mortgage having a higher priority than either DMU mortgage.

Under all the facts present, the court correctly reformed the mortgage to reflect the parties’ actual intent and did not revise, modify, or alter the parties’ agreement.

III. Consideration for Subordination

DMU's next argument is that LSB provided no consideration for the subordination agreements. The court found the $4.25 million of the LSB loan contracted to go to DMU “was certainly a large part of the consideration given by LSB.” DMU urges the $4.25 million payment was not part of the subordination agreement, and so cannot be deemed as consideration.³ The court also rejected a DMU argument that LSB owed DMU a duty under all the executed agreements to monitor DB Booneville as part of the consideration.

“Consideration can be either a legal benefit to the promisor, or a legal detriment to the promisee.” Meincke v. Northwest Bank & Tr. Co., 756 N.W.2d 223, 227 (Iowa 2008). And “[t]he detriment to the bank is adequate consideration for the subordination agreement.” Id. Here, the original subordination and standstill agreement specifically provided LSB was unwilling to continue bank indebtedness or make future loans without subordination; and DMU found “it would be in [DMU]’s best interest to assist [DB Booneville] in obtaining credit accommodations from [LSB] and therefore is willing to make and enter into this agreement.” The construction contract would allow for the increase in value of the land in question (and facilitate the sale of the land), and DMU obtained a partial payoff of its liens. This is sufficient legal detriment to LSB and performance in favor of DMU to constitute consideration for the subordination agreement.

IV. Limitation on Recovery

DMU next asserts LSB was only entitled to 70% of the proceeds from the real estate, and DMU should receive the balance. This argument relies on the court finding that DMU “was the intended beneficiary of at least some of the promises made between LSB and DB Booneville.” DMU contends the court should have “consider[ed] and properly interpret[ed] the integrated suite of agreements executed by the parties on April 19, 2021.”

First, the court found the 70% language—“[LSB]’s Mortgage will be partially released on the ground purchase only after receipt of 70% of the gross purchase price applied to [LSB]’s loan”—was only in the LSBDB Booneville business loan agreement, with “no comparable provision contained in the subordination agreement to which both DMU and LSB were parties.” And the court found that the provision was intended to apply to partial sales during the life of the loan, but the obligation for partial release terminated when the default provision of the agreement kicked in after DB Booneville failed to repay its loan.

The split language was found in the covenants section of the business loan agreement. But the agreement also provided that in the event of default—including DB Booneville failing to make payment when due—“all commitments and obligations of [LSB] under this Agreement or the Related Documents or any other agreement immediately will terminate.” We agree with the district court that nothing in the agreement required LSB to continue to fulfill its covenants after breach and default by DB Booneville. Nor does any version of the executed subordination agreement provide for a split. Rather, the subordination agreement provides that under insolvency, bankruptcy, or liquidation of DB Booneville, all dividends and payments would be paid over to LSB to the extent any LSB priority debt remained.

We find the split provision in the business loan agreement was terminated upon DB Booneville's default, and nothing in the subordination agreement would provide for a split of proceeds with DMU in the event of default by DB Booneville.

V. Amended Order

Last, DMU argues the court erred in amending its foreclosure order. In the November 2024 ruling, the court found DMU was entitled to a first mortgage of $1,287,009.92, followed by LSB's first mortgage lien against up to 100% of the sheriff's sale, then DMU's lien against the remainder. The $1.287 million represented the funds LSB allowed to be withdrawn for purposes unrelated to the construction project. LSB moved the court to amend its ruling to place LSB's lien first except for the $1.287 million. Next would be DMU's full liens, and LSB's remainder $1.287 million debt would have third-position priority. In other words, LSB's appropriately-distributed funds would be repaid first, then DMU, then the unrelated LSB distributions.

DMU argues the court's initial determination was correct, and that the change “improperly rewards LSB for its systematic failure to oversee loan proceeds and breaches of fiduciary duty.” We disagree with DMU that the amended ruling rewards LSB; rather, it prevents a windfall to DMU outside the contractual priority order. We affirm the amended distribution.

AFFIRMED.

FOOTNOTES

1.   Appellant's brief designates Parcel 1 as the “East Parcel” and Parcel 2 as the “West Parcel.” But Parcel 2 is located to the east of Parcel 1 (the opposite of appellant's parcel descriptions). All similar references in the record below appear to refer to the geographical east/west designations, not those used by appellant's brief. Because of this confusion, we will use Parcel 1 and Parcel 2 to refer to the properties.

2.   In September 2024, the parties received notice Daniel Pettit was filing for bankruptcy.

3.   DMU's manager Lowell Kraff testified at deposition that “the whole inducement” was that Pettit/DB Booneville would get the LSB loan and pay part of the DMU loan back.

Opinion by Buller, J.